Jim Hartman: California’s $8 Big Mac

Effective April 1, California’s minimum wage for fast-food workers will become $20 an hour. That’s up from the $15.50 minimum wage paid to all workers in the state at the end of 2023.

The new law applies to employees working for fast- food restaurants with more than 60 locations nationally.

It represents a near 30% wage increase.

While the law has been hailed as a victory for low-wage Californians, it will increase unemployment among fast-food workers and raise food prices for consumers as an unintended consequence.

Democrats in Sacramento last September enacted the $20 minimum wage for fast-food workers in a deal between restaurants and labor unions.

The law was a compromise after an even more extreme measure was passed by the Legislature and signed by Gov. Gavin Newsom in September 2022.

That bill, the Fast Food Accountability and Standards (FAST) Recovery Act, would create a politically-appointed 10-member fast-food council with power to micromanage restaurants and raise worker wages to $22 an hour. As a result, many franchises would have been forced to close.

In response, a campaign to get a repeal measure on the 2024 ballot quickly was initiated. Restaurant groups gathered enough signatures for a referendum.

Worried that a referendum would prevail, Newsom brokered a deal between hardline, aggressive labor union organizers (AFSCME and SEIU) and their targets, including McDonalds, Starbucks, Chipotle , In-N-Out Burgers, Chick-fil-A, Wendy’s, Domino’s, Pizza Hut, etc.

In the compromise, the powers of the fast food council were limited and the $22 minimum was reduced to $20. In return, the restaurants scrapped their referendum.

However, even though a $20 minimum wage is less than $22, California’s fast-food minimum wage will surpass the highest basic minimum wage in all other states.

When states force industries to massively increase wages, the result isn’t that the same number of employees start making more money. Instead, California’s enactment of this dramatically higher fast- food minimum wage will result in higher industry unemployment and increased prices for customers.

It’s certain that businesses will adapt by laying off workers. It would defy economics and logic to believe otherwise.

Pizza Hut drivers are already early victims of the new $20 minimum wage.

At the end of December, Pizza Hut franchises told more than 1,200 delivery drivers that they will lose their jobs before the higher wage takes effect. Pizza Huts will be shaving their costs by outsourcing delivery services to apps like DoorDash and GrubHub.

More fast-food businesses will follow.

Another side effect of California’s new $20 minimum wage will be the acceleration of fast-food companies’ move to automation to save on labor costs.

McDonald’s has moved to using touch screens in recent years instead of customers interacting with cashiers. The more arbitrarily expensive you make human labor, the more companies are incentivized to embrace automation.

Fewer workers will also mean longer waits for the drive-through.

Restaurants will pass on their higher labor costs to customers. The $20 minimum wage will cause fast- food prices to increase by an estimated 20%.

One study examining McDonald’s found nearly 100% of the costs from increased minimum wages were “passed on” to consumers in the form of higher menu prices.

McDonald’s and Chipotle have announced they plan to raise prices in California.

Californians should expect to pay $8 for a Big Mac.

Unions pushed the $20 fast food minimum to force employers in other industries to raise wages to compete for workers. It’s highly inflationary and its impact on prices and jobs will extend across the entire economy.

The $20 fast-food minimum wage may be “good politics,” but rather than making life better for Californians working in fast-food, it will cause many to lose their jobs.

 And, fast-food customers will pay more.

E-mail Jim Hartman at lawdocman1@aol.com.